DIARY OF A PORTFOLIO MANAGER
May 2, 2025
"I see a man
With an airfield plan
I caught a boy fall out of the sky
What do you know about this world anyway”
-The American, Simple Minds
There is a very good chance that I will see the band Simple Minds this summer. My favourite album of theirs came out around 1985 so should be a fun evening. Trinity College in Dublin on Canada Day is the current venue of choice to see them. In other news, the month of April has come and gone (thank God). Also come and gone is some of the drama and market volatility resulting from the threat of a global trade war.
April saw wild moves but remarkably ended flat
Global stock markets finished the month close to where they started. That is an impressive feat given what transpired. More specifically, the global stock market fell nearly 10% during the first week of April as the U.S. unveiled its initial reciprocal tariff plan. I heard someone refer to Liberation Day as “Obliteration Day” which seems appropriate. One week later, on April 9, they backed off significantly. From April 9 – May 1, the S&P 500 is up 12% and TSX up 10%. Who would have guessed? Overall, global markets subsequently recovered those losses, finishing the month marginally higher in constant currency terms (i.e. ignoring the effect of the Canadian dollar, which itself moved higher). Moreover, bond yields and currencies also saw relatively large moves. Uncertainty remains elevated, but the past month should serve as a reminder that while periods of heightened volatility can be unnerving, it is best to resist the urge to react to the noise and avoid straying too far from targets in investment plans. This was the case in 2018, 2020, 2022 and so far this year…
Canadian elections
Canada has elected a minority Liberal government which was not at all in the cards two months ago. It is too early to discuss the implications for the short and long-term. Nevertheless, there are a few takeaways worth sharing. First, there is an expectation that this Liberal government will shift towards the centre and be more focused on economic than social policy. Beyond tariffs, the objectives at a high-level are expected to include lower immigration, the reduction of interprovincial barriers, and increased spending in areas like infrastructure, housing, resources and defence. Given its minority position, the Liberals are expected to negotiate with the Bloc Québécois and New Democrats, both of whom lost a number of seats in the election, to get policy pushed through. Near-term, Prime Minister Carney is expected to meet with U.S. President Trump to discuss trade and evaluate a range of potential concessions that could lay the groundwork for a new potential trade agreement between the U.S., Canada, and Mexico next year.
A de-escalation taking hold
The U.S. administration has been scaling back some of its trade demands recently. For example, many of the reciprocal tariffs announced on “Liberation Day” have been temporarily reduced, exceptions have been granted for key electronic components, and certain accommodations have been made for the automotive sector. Moreover, the U.S. administration is showing more willingness to negotiate than it did just a few weeks ago. In other words, it would appear there is a de-escalation of the aggressive approach to trade undertaken by the U.S. earlier this year. This trend has moved us further away from a worst-case scenario that would have been marked by elevated blanket tariffs across all sectors and countries for an extended period of time. It seems so far that tariff exemptions are favouring very large cap businesses over the smaller businesses that make up most of main street and a large part of the economy.
Improved sentiment but caution still warranted
Despite some improved market sentiment, many questions remain unanswered. Most importantly, how much damage will the U.S. approach on tariffs cause to the U.S. economy? The recent first quarter U.S. GDP figure revealed a significant uptick in imports, suggesting consumers and businesses were front-loading their purchases of goods ahead of the arrival of tariffs. This indicates that tariff threats have already had an impact. Whether they continue to have an impact will depend on how long the tariffs remain in place and whether the levels of trade hostility from the past month can subside more meaningfully. Given the heightened level of uncertainty and overall market valuations, we continue to approach the management of our client portfolios with caution.